When the combination (merger) involves firms that are of similar size, the term used is _________.

Consolidation

The correct answer is Option 2: Consolidation

A merger is a combination of two companies into one larger company. This action involves stock swap or cash payment to the target. In merger, the acquiring company takes over the assets and liabilities of the merged company. All the combining companies are dissolved and only the new entity continues to operate. In general, when the combination involves firms that are of similar size, the term, consolidation, is applied.